US call for Chinese revaluation falling on deaf ears

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Europe and Japan will head for G20 with a softer approach, reports
John Fraher.

Washington: US Treasury Secretary John Snow may struggle to drum
up support from European and Japanese colleagues this weekend as he
urges China to revalue the yuan further against the dollar.

Mr Snow, who has been touring China this week, will join
policymakers including US Federal Reserve chairman Alan Greenspan,
European Central Bank president Jean-Claude Trichet, Japanese
Finance Minister Sadakazu Tanigaki, and Chinese Finance Minister
Jin Renqing in Grand Epoch City, near Beijing, for the annual
meeting of G20 nations on Saturday and Sunday.

The secretary is under pressure to get China to let the yuan
appreciate, mainly from US politicians who say the Chinese policies
add to the record US trade deficit by making it cheaper for
Americans to import goods.

US Senator Charles Schumer has told Mr Snow he expects China to
be labelled as a currency manipulator next month in the Treasury's
semi-annual report to Congress, if it doesn't act.

"The US could try, but I doubt they will succeed" in winning
more support from Europe and Japan, said Stephen Jen, head of
global currency research at Morgan Stanley in London.

The yuan has gained less than 0.3 per cent against the dollar
since China ended its decade-old peg on July 21. Mr Snow has this
week on at least three occasions urged China to allow more
flexibility in its currency system and is expected to do so again
in Beijing.

"It is noteworthy that the US is going to have a full
delegation," said Edwin Truman, a senior fellow at Washington's
Institute for International Economics. "The [US] Administration is
going to, around the edges, try to encourage the Chinese to do more
than they have done on the currency."

The Europeans and Japanese have been less forthright.

Japan's Mr Tanigaki said last month policymakers need to "watch
for a while" before asking China to change its currency system
further. European Union Monetary Commissioner Joaquin Almunia said
this week lobbying should be through "discreet conversations and
contacts and not many public declarations".

Last month the G7 communique dropped the wording from previous
meetings that "flexibility in exchange rates is desirable for major
countries", which economists said was directed at China.

The G7 consists of the US, Japan, Germany, Italy, France, the UK
and Canada. Morgan Stanley's Mr Jen said: "There was a view among
the Europeans and the Japanese at the G7 meeting last month that
persistent pressure may not be the best approach. That wasn't
shared by the US."

There are more than a dozen pieces of legislation in the US
Congress that aim to punish Chinese economic policies. One is a
measure to impose tariffs of 27.5 per cent on all Chinese imports.
The US buys more Chinese-made goods than any other country.

"That explains the sense of urgency on the US end," said Phillip
Swagel, a scholar at Washington's American Enterprise Institute.
"[Mr Snow] will have to be both good cop and bad cop. He's got to
have to praise China for the flexibility they've introduced, then
ask them to do more."

China, whose trade surplus for the nine months to September
widened to $US68.3 billion ($91 billion) from $US3.99 billion a
year earlier, is showing little willingness to comply. Mr Renqing
said in Beijing this week that China "won't be pushed".

Mr Snow is also likely to urge International Monetary Fund
managing director Rodrigo de Rato to take a bigger role in pushing
China to change its policy.

"We look to the IMF to take the lead," Mr Snow said last week.
Mr De Rato, who will attend the G20 meeting, is yet to respond.

The G20 brings together the G7 plus developing nations such as
India and Brazil. Its members account for 90 per cent of the global
economy and 80 per cent of world trade. Surging oil prices, trade
imbalances and IMF voting rights will also be discussed this
weekend, according to government officials and analysts.

The meeting will also bring Saudi Arabia and Russia, which
supply about a quarter of the world's oil, together with some of
their largest customers. China and India accounted for about 11 per
cent of global demand last year. The US consumes about 25 per cent
of supply.

The price of crude oil futures in New York gained 45 per cent
this year and closed on Thursday at $US62.82 a barrel. In August it
hit a record $US70.85 a barrel.

Central bankers have expressed concern inflation will accelerate
as a result of climbing fuel costs.

"When you look at higher oil prices, risks to the global economy
have increased," said Juergen Michels, an economist at Citigroup in
London.

John Kirton of the University of Toronto, who studies the G7 and
G20, said the best chance for agreement might be reform of the IMF
and World Bank.

The US and Canada support giving more clout to countries such as
Mexico and South Korea, whose voting weight at the institutions
lags behind the size of their economies. That might face resistance
from European nations, who face losing votes in a reshuffle.

A breakthrough on oil prices or the voting structure at the IMF
and World Bank would add legitimacy to calls to expand the G7 to
include more developing nations in its discussions over the world
economy, Professor Kirton said.

"This is the first real opportunity for the G20 to show that it
can add more value to the international situation. It has to show
that it can crack some tough deals to show this is the way to
go."

G20 includes Argentina, Australia, Brazil, Canada, China,
France, Germany, India, Indonesia, Italy, Japan, South Korea,
Mexico, Russia, Saudi Arabia, South Africa, Turkey, the UK, the US
and the European Union.

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